President Elect Obama, you’re about to get your first big economic test: Cave to the anguished cries of the crippled US car industry and waste tens of billions of taxpayer dollars postponing the inevitable. OR: Just let the crippled companies finally go bankrupt. Ford, GM, and Chrysler are done for regardless, Obama. Bailing them out yet again won’t fix them. It will just prolong the agony.

The companies’ problems result from:
* Their inability to build cars (cars, not trucks) Americans love
* Their inability to restructure their way out of their pension and union obligations
* Their inability to compete on their own merits.

Throwing another $25 billion of taxpayer money down the rat hole won’t do anything other than postpone the crisis. Just let the companies go bankrupt, Obama. That’s what bankruptcy is for. Let the shareholders and debt holders take the hit. Not the American taxpayers. Ford, GM, and Chrysler will continue to make cars. They will continue to employ Americans. (When airlines go bankrupt, they keep flying). Most importantly, they will finally be able to do the major restructuring that they have been postponing for decades. Help retrain the workers, obviously. Help bail out some of the pensions. But don’t blow your first tough test on the economy and bail out an industry that should have died 20 years ago.”

As General Motors and Chrysler race to pull together their restructuring plans ahead of a government-mandated deadline on Tuesday, one of the top academic experts on distressed debt and bankruptcy is calling for the Obama administration to dispense with niceties and push the carmakers into bankruptcy.

If done right, the move could help ensure that taxpayers remain first in line for repayment, according to Edward I. Altman, the Max L. Heine professor of finance at New York University’s Stern School of Business. “The question is, does the Obama administration have the courage to take that next step?” Mr. Altman told DealBook on Sunday.

It is a stance that Mr. Altman, who is the director of N.Y.U.’s credit and debt markets research program, has publicly espoused for some time. Chief among his concerns now, however, is not only reaching a way to restructure G.M. and Chrysler in the least painful way for the companies, but also to protect the billions of dollars in government money lent to the companies.

The Treasury Department — which The New York Times reported Sunday is now taking the lead in negotiating with the carmakers — already has hired an investment bank, Rothschild, and two law firms, Cadwalader, Wickersham & Taft and Sonnenchein, Nath & Rosenthal, as advisers.

One of the goals of these advisers is to ensure that taxpayers fall in the top layer of G.M.’s capital structure, a person close to the Treasury department told DealBook. The $13.4 billion that G.M. received in December was made in a way that ensures that the government is what is known as a senior secured lender, with assets backing up the loan. But in another, smaller batch of multibillion-dollar loans, the government falls behind several banks in terms of being repaid, this person said.

To remedy that, Mr. Altman proposes this: the government force G.M. into bankruptcy, then provide what is known as debtor-in-possession financing for the carmaker, probably through a bank or finance firm like General Electric’s GE Capital. Mr. Altman pegs the necessary amount at about $50 billion, given G.M.’s cash burn rate of about $2 billion a month.

The money would ideally be doled out in increments, with G.M. needing to hit certain milestones to receive the next infusion of cash. “Basically, the idea is that we’re going to stop throwing good money after bad,” he said. “I think it’s very important that the government take a stand on this somewhere. Otherwise, it’s going to continue.”

There’s a specific reason the government should provide the DIP financing, according to Mr. Altman. In bankruptcy, such a loan is given priority status over all other claims, and only rarely has a company defaulted on a DIP loan. (One banker specializing in DIPs describes them as “belt-and-suspenders financing.”) Yet the market for DIP loans has only recently started to crack open, with much of the money coming from companies’ existing lenders instead of new capital.

Moreover, Mr. Altman points out, the largest DIP loan on record is the $8 billion lent last month to Lyondell Chemicals. Cobbling together a bank consortium to provide $50 billion would prove unwieldy, given the troubles in the banking industry, making the government the ideal source of the financing. However, it should still try to twist the arms of banks that have received federal bailout money to stump up some of the needed money.

Much of the opposition against pushing the likes of G.M. into bankruptcy is the disruption that such a huge event would cause. But Mr. Altman discounted those worries, saying that if the process was done right, the markets would recover. Important steps are actions that have already been discussed, including some sort of guarantee for auto warranties, even in the worst-case event of a G.M. liquidation.

More importantly, bankruptcy will finally allow G.M. to save costs and more effectively bargain with its various counterparties, including suppliers, auto unions and bondholders. “The markets might be a little freaked out, but things have softened up a bit,” he said. “There will probably be some reaction on the part of the markets, but look at what the bonds are selling for. They’re already at below-average bankruptcy levels.”

You don’t have to spend much time talking with Chelsea Sexton to realize she is passionate about electric vehicles. Sexton has been part of the EV debate that started in the 1990s with the debut of General Motor’s first mass-production all-electric vehicle, the EV1. Sexton worked for GM, leasing the EV1 to customers and working on marketing strategies, until late 2001, when she was laid off and GM stopped the EV1 program. The EV1’s story is told in the new film “Who Killed The Electric Car?”, which features Sexton and others talking about the strange fate of the cars that were once hyped by Hollywood stars, then found a fanatic consumer base, and are now out rusting in the desert. Sexton found time for an exclusive Q&A with AutoblogGreen.

ABG: Do you think “Who Killed The Electric Car?” accurately portrays the EV1 story?
Sexton: I do, actually. I’ve been really proud of Chris [Paine, director] and Dean [Devlin, executive producer]. That is part of what has enabled all of us to have a good level of trust going into it because it is their story, too. The director and the executive producer were both drivers of these cars [EV1s]. We knew they’d do right by the story. I’ve been really impressed with how well Chris told that complex story in a precise and compelling way.

ABG: How did you get involved in the film?
Sexton: (laughs) I leased them their cars. I’ve known Chris for about nine years and I actually leased Dean his car but also his father Don Devlin was one of my very first drivers, the guy to whom the film is dedicated. In some ways, Don is responsible for our ability to tell the story with such accuracy because he was, from the very beginning, saying the auto companies do not want to do this and he made us pay attention all along. It was very rewarding to get to tell the story for Don in the end.

ABG: There is a scene in the film where you go see an EV1 in an underground parking garage, I think in a car museum. Is this the last EV1 in existence?
Sexton: No. There are about 40 that GM gutted and donated to museums and universities, basically in an effort to get some brownie points in the end, I guess. The Peterson [Automotive Museum] got one of them. Another one that is kind of making a lot of waves right now is the one in the Smithsonian because they got the only intact car, but they just removed it from display. The Washington Post wrote a big article on it a few days ago. The other interesting component is the wing that the EV1 sits in was paid for by General Motors. GM donated $10 million to the museum and now, on the eve of the film coming out, they remove the car. There’s no conspiracy theory involved, but it certainly is a big coincidence.

ABG: The films shows there was quite an activist movement to save the EV1, and you were part of this group. How should activists approach such battles in the future?
Sexton: I think, more and more, it’s imperative that consumers ask for what they want and not settle for the status quo. Part of that comes from having worked within the industry and I know how it works. The typical industry model for automotive is, “We’re gonna build something and convince the customer that they want it” not, “Let’s ask them what they want and build it.” This is one of those cases where this was absolutely been proven. Just last year, as a good little example, Life and Times [Los Angeles-area PBS show] did a story on auto enthusiasts and they went to Hummer and to Prius and they came to us last at the vigil. While they’re setting up we were just chatting, and they said, “We just went to Toyota and we asked them about all this grassroots demand for plug-in hybrids and the Prius seems like the obvious first car to start with and people are making them in their garages. Why don’t you build a plug-in Prius?” and they said, “Because we don’t have to. So many people are buying the gas-burning version we don’t need to build anything else.” That’s sort of the perfect distillation. As long as we buy what they’re making, they won’t make anything else. It is necessary that consumers get involved, whether that’s protesting or grassroots pressure or simply voting, not just politically but with your wallet and not buying something that isn’t truly what you want. We have to get involved if we’re going to end up seeing in the showrooms the cars that we really want to drive. Because that’s what it’s about in the end. It’s not about, Oh my gosh, this one little car. It’s about the choice that consumers have been denied. I’d never tell a Hummer driver that, “You can’t have the choice to drive a Hummer.” Choice is one of the cornerstones that we hold up as an American value. Similarly, we want the same choice, to drive something cleaner, especially something that has been proven to be viable in the market.

ABG: And people were interested in driving the EV1. Was this because it was a zero-emission vehicle?
Sexton: People buy cars for different reasons, many of them emotional. A lot of reasons people buy products in general are not necessarily the most logical on paper arguments. But there is absolutely a segment of folks who want a car that is clean or a car that is smooth and quiet, or a car that doesn’t pollute or a car that doesn’t rely on the Middle East. I mean, if you as Jim Woolsey [former head of the CIA, currently a partner in Booz Allen and works with Set America Free and Plug-In America, where Sexton is director] why he wants one of these cars, it has nothing to do with the environment. He’s an environmentalist, but that’s not his primary motivation. It’s all about domestic energy. There are more and more, as time goes on, all kinds of varying reasons why people like these cars, which is what makes it such a common ground, technologically.

ABG: The movie ends by showing the plug-in hybrid as the next best car. What do you think the future of electric cars will be in America?
Sexton: I think for pure electrics, the next stage is going to come out of the smaller companies, the Teslas of the world. That car is wicked fun to drive; it’s a very cool little car. In terms of the major automakers, I see them first going to plug-in hybrids, partially because there is a very broad market for it and partially simply because it’s not a purely electric car and there is such an emotional fight right now. The more we want them the more they’re not going to make them and it’s almost come down to that particular fight over principle. So they are more likely to make plug-in hybrids, and that’s fine. In our experience, the best way to get people to use less oil is to give them the option to use none, even if that’s just for twenty or forty miles a day. That still gets most people through their daily commute and when you need to go further you have that back-up tank that you can put gasoline in, and eventually we’ll be putting ethanol in or biodiesel or something else. I’m fine with the plug-in hybrid. I don’t see it some sort of compromise in a bad way.

ABG: What kind of car do you drive?
Sexton: I drive a Saturn. I’ve had about eight of them. I won’t buy a hybrid, so I drive a good little economical gas car, as little as possible and I won’t buy another car until I can buy one with a plug on it. Mostly, it’s just what working in the industry and watching what we were showing and then watching the sort of diluted products that we came out with. I use the analogy of accepting Cs from your kids when you know they can get As. In the case of the Prius, paying thirty grand for that C? I’ll wait until there’s a plug-in hybrid available or an electric car.

ABG: Finally, who do you think killed the electric car?
Sexton: No single snowflake in an avalanche feels responsible. I certainly think that some foes played a bigger role than others, but I don’t think that any one of those suspects could have done it alone. It’s a matter of a confluence of events and people, industries and companies acting in their own best interests and people not asking enough questions. Also there was a certain amount of complacency. I don’t have just one suspect. I know some folks do, but having been in the middle of it, I know it took more than one.

Power Q&A: Chelsea Sexton
The bubbly star of “Who Killed the Electric Car” explains why General Motors is still her favorite car company, even after they laid her off and buried the EV1.”
BY Jen Phillips / April 21, 2008

Mother Jones: What is the most promising new energy source?
Chelsea Sexton:Well, there is a lot of low-hanging fruit in the existing renewable energy sources, like wind, solar, geothermal. And one of the things that will enable those sources the most is actually the deployment of plug-in cars, because they provide a way to store this renewable energy that currently we don’t have on the grid.

MJ: What’s the most overhyped energy source?
CS: Probably nuclear.

MJ: If you had $1 million, where would you invest it?
CS: I would probably invest it in batteries, or in things to enable the smart grid.

MJ: What do you think it will take for renewable energy to go mainstream?
CS: Economics and awareness, really. We often find that policymakers try to drive this from a grid perspective, but what really accomplishes it is pulling—the consumer is pulling. For instance, about 50% of the people who drive EVs currently went out and got solar panels because their awareness of where their energy was coming from was heightened, and they wanted to complete that cycle. Whereas if you are pushing it from the grid, you already have electricity coming out of your wall now. Most consumers don’t really care where the electricity is coming from, or they don’t care enough to pay more for it, because their end-use experience is the same. So the use of renewables in general will be driven by wanting different gadgets, or wanting to be able to do different things with those gadgets.

MJ: Does there need to be more public awareness of the different options that people have in terms of places for them to get energy?
CS: Oh, absolutely. Absolutely. Industry in general, whether it is auto industry or utility industry, tends to fall back on this “we want to do what consumers want” type of argument. “We aren’t building better cars because consumers aren’t asking for them.” Consumers can’t ask for what they don’t know is possible, whether that is wind energy or electric cars. We didn’t know we wanted iPods until they were available. Who looked at their Walkman and said, “Gee, I wish this were the size of a deck of cards and I could watch TV on the thing”? It just wasn’t something that we even thought to ask for. So we have to raise awareness of these other things so that people can then go out and ask for them or seek to actually do them.

MJ: Do you have a favorite personal energy-saving tip?
CS: I try to take up less space in the world. I live in an apartment. I don’t drive if I don’t have to. I use less of whatever I can. But at the same time I’m a big fan of technology and technology’s potential to enable that sort of efficiency. You know, electric cars can help you drive 100 miles on the energy equivalent of a gallon of gas.

MJ: And what kind of car do you drive?
CS: A little Saturn. I won’t buy another car until I can buy something with the plug on it.

MJ: When do you think we’re going to see the last gasoline-powered Hummers?
CS: We are going to see large vehicles for decades. But what we are already starting to see and what I think will continue is the trend of making those large vehicles more efficient. We are starting to see hybrid Tahoes and Escalades, because consumers are limited in their willingness to compromise. You have to give them alternatives so they can have their cake and eat it too. And there’s no reason we shouldn’t be making all of those vehicles hybrids, and then plug-in hybrids, and I think we will start to see that. A lot of that will be driven by consumer demand. People are starting to get more enthusiastic about smaller cars, but we will also see one way or the other what the enthusiasm is for more efficient big cars.

MJ: Have you seen any recent activity on the plug-in front? Any developments?
CS: Yeah. I would consider all of the automaker enthusiasm for plug-ins a recent development. You know, only a year and a half ago, maybe, there were no plug-ins being talked about by the automakers. GM remains the only automaker to have announced plug-ins for production and they’ve announced two in the Saturn Vue and the Chevy Volt. Ford is doing a plug-in hybrid test-pilot program with SBC. Toyota announced 400 cars for another test program. And it’s one of those things where people really, really, really have to get involved because CRB is proposing to reduce the number of zero-emission vehicles automakers are required to build by up to 90%, which automakers love, but the rest of us, not so much.

MJ: What one policy change do you think would get us furthest toward cutting either fuel consumption or increasing fuel efficiency in the U.S.?
CS: Well, CAFE has proven to be a nonstarter. Honestly, that’s not terribly effective. The most effective policies, and there are multiple ways to go about them, are the ones that make products available. At this point, the most useful policy would be one that puts cars in showrooms.

MJ: So there’s no use giving people tax credits if they can’t find that kind of vehicle in their town.
CS: Exactly. I mean, it’s a chicken-and-egg thing. Automakers don’t want to build cars unless they are sort of incentivized. R&D pilot programs are useful, but we had anchored very firmly in that camp, and we have put off actually doing anything until R&D has been done to death, so it’s nice to continue to provide funding for those sorts of things. But we really have to yank it back toward actual production and commercialization of these technologies. You know, fuel cells obviously are 20 years away. But plug-ins and biofuels are much closer. And I think we really ought to be emphasizing the near-term technology and not so much on the R&D. We can’t afford to wait.

MJ: Do you have a favorite car company that you think is being really innovative?
CS: As ironic as it is at this point, I would have to put my money on GM. [Sexton was laid off by General Motors when it killed the EV1 electric car program she was working on.] And trust me, I’m the last person that ever thought I’d be saying that, but they are the ones that are the most aggressive right now about actually not talking and more doing. And they absolutely still have to come through, and I am cautiously optimistic until there is a car in my driveway from whomever. Nobody else has actually put their money where their mouth is and said “We are going to build cars by this date,” so I think they deserve some credit for that.

MJ: Would you rather live next to a nuclear power plant or a coal-burning plant?
CS: Well, I’m within walking distance of an oil refinery. I’m not sure either one of them would be a significant difference. Probably nuclear if I had to make a choice.

MJ: Is that just because the chances of an accident are smaller than with coal, which is putting stuff in the air everyday?
CS: Basically, yes. The health impacts are less immediate with nuclear, but I’d want to avoid either one.

Across between a fortress and a cathedral, the General Motors world headquarters in Detroit is as impregnable as the corporation it houses. The company cultivates an image of efficiency and dignity, taking special care to preserve an aura of sacrosanct wisdom in its most senior executive offices on the 14th floor of the building. But an entertaining and surely controversial new book makes that aura look more like a fog as it lifts some of the confidentiality from the world’s largest industrial corporation.

On a Clear Day You Can See General Motors (Wright Enterprises; $12.95) was written by J. Patrick Wright, former Detroit bureau chief of Business Week. But by all accounts it is drawn from the words of John Z. (for Zachary) DeLorean, a 17-year GM veteran who abruptly quit a $650,000-a-year job as group executive for cars and trucks in 1973. DeLorean, now 54, had a good shot at the GM presidency. But apparently his fast life, long hair and penchant for marrying young women (thrice) and divorcing them (twice) did not fit the GM mold.

He and Wright agreed to co-author the book shortly after DeLorean left. Wright interviewed the executive at length, got DeLorean’s personal papers and says that “anything of a substantive or controversial nature is either on tape or appears in John’s handwritten notes. It’s airtight.” But DeLorean backed out of the project; he has started an auto plant in Northern Ireland and may want GM’s help in securing parts and dealers. After years of frustration, Wright took out a $50,000 second mortgage on his house and published the book himself. The work is presented as DeLorean’s first-person account, and he now says that he generally would not repudiate it.

DeLorean’s kiss-and-tell story of GM in the ’60s and ’70s depicts senior GM executives as men hemmed in by tradition, swamped in paper work, and totally in thrall to their company careers. Invention and flair, he charges, have disappeared from GM, which “has not had a significant technical innovation since the automatic transmission.” The path to the top, he asserts, required a cultivated subservience. He says, “It was called ‘kiss-my-assing’ when it was done by a supplier to a customer, and ‘loyalty’ when it was done inside GM.”

According to the book, high managers were directed from above to give contributions to the company’s political campaign fund in assigned amounts up to $3,000. The checks were made out to cash. Ranking executives made every effort to have their meal checks and other expenses picked up by obsequious subordinates so that if shareholders’ inquired at the annual meeting, the brass could boast of modest expense accounts. Spying on a competitor was not unknown.

DeLorean alleges that in the early 1960s, Chevrolet had two moles working in Ford’s product-planning area. “For a price,” he says, they “passed on new product information. “The excessive emphasis on cost cutting,” he recalls, “produced an aberrant method of evaluating performance. At one time the assembly plant in Tarrytown, N.Y., year in and year out produced the poorest quality cars of all 22 GM U.S. assembly plants. In some instances, Tarrytown cars were so poorly built the dealers refused to accept them.” Yet because of consistently low production costs, DeLorean contends, the plant manager got one of the highest bonuses among all GM managers.

In the most serious charge, DeLorean contends that GM knew about the safety problems of the Chevrolet Corvair before production began and failed to remedy them. Claims DeLorean: “Charlie Chayne, vice president of engineering, along with his staff, took a very strong stand against the Corvair as an unsafe car long before it went on sale in 1959.

He was not listened to but instead told in effect: ‘You’re not a member of the team. Shut up or go looking for another job.’ ” DeLorean says he feels that the decision makers were “not immoral men.” But, he adds in Wright’s book, “these same men in a business atmosphere, where everything is reduced to costs, profit goals and production deadlines, were able as a group to approve a product that most of them would not have considered approving as individuals.”

GM and Chrysler’s restructuring plans today both lay out what would happen if they were forced into bankruptcy. Both try to make the case that it would be a disaster. GM’s says, “Quick has seldom been the pace of bankruptcy proceedings in this country.” The details are in Appendix L, where it lays out among other things how the brand would be damaged in the “RoW” (Rest of the World). Chrysler has a whole chapter titled “Orderly Wind Down Scenario.” Though it reads more like a threat.

Chrysler is asking Congress for an additional loan of $5 billion, on top of the $4 billion loan it already got. The company has announced that among its three core brands, it will discontinue the PT Cruiser, the Dodge Durango and the Chrysler Aspen. GM, meanwhile, says it may need as much as $21.6 billion. It, too, promises to make cuts, including killing off its Saturn, Saab and Hummer lines. As you can see from the poll, GM has several lines to choose from. Which brings us to the poll. If you were in the captain’s seat at GM, which one brand would you remove?

“Remaking the U.S. industry must involve cheaper, lighter, safer cars that demand less — or no — fossil fuel. How hard is that? From India come reports that Tata expects to release a $2,500 car called the Nano later this year. Perhaps our automakers need to learn how to produce autos like breakfast cereal — not exactly disposable but not meant to last 200,000 miles either. If there were changes in consumption patterns, the 85 million barrels of oil consumed by the world today would need to ramp up to 120 million barrels by 2030. Since most oil fields are believed to be near their peak of production, either this fuel would need to be replaced or there are going to be a lot of fuel-deprived Nanos on the side of the road.

I’m going to shock you now by reporting that General Motors actually has some pretty good ideas along these lines. Larry Burns, the company’s head of research and strategic planning, has apparently been locked in a closet with his No. 2 pencil for a while and not permitted to push his ideas into production, but he’s been hitting industry meetings with a set of ideas that look like they deserve a hearing.

Shifting the auto industry into drive
Burns, who has a doctorate in civil engineering to go with his 35-year pedigree in Detroit, says he believes the automakers have an extraordinary opportunity now to start fresh and revolutionize personal mobility in the U.S. starting in 2010 in ways similar to the revolution that his forebears launched in 1910.

In a recent presentation, Burns noted there’s no need to invent anything new. There are already ideas that are technologically doable and appear to be economically viable if done in mass production. Vehicles are not much different than they were a hundred years ago: powered by petroleum and internal combustion engines, controlled mechanically and hydraulically, and operated independently of each other.

Cars for the next century would have a new genetic foundation in which they would have electric drives and electric motors, would be controlled by electric sensors and would be aware of each other in an unprecedented way. GM has these vehicles ready to go now, with Chevrolet’s new Volt, an electric car, and its Equinox, powered by fuel cells.

New, proven technology provides higher energy with greater power density than seen previously, increasing range while allowing fast recharges out of a common wall socket. If you had to pay only 2 cents per mile, or 80 cents a day, imagine how much money that leaves for purchases of other stuff. Hydrogen fuel cells, meanwhile, are a well-understood technology, too, and for less than the cost of a new Alaska oil pipeline, Burns figures that conveniently located service stations could be deployed in the 100 largest U.S. cities and every 25 miles on interstates, putting hydrogen within reach for 70 per cent of the population.

Connected vehicles, meanwhile, would be aware of each other on the road to prevent collisions, and, combined with GPS devices, could actually drive themselves with a sort of sixth sense by understanding the speed of similarly equipped cars around them, a process called V2V communication. In a V2V world, vehicles constantly broadcast their positions and velocities in a quarter-mile radius, detecting road conditions up to 10 car lengths ahead — permitting the vehicle to sense sudden stopping, potential intersection collisions and lane changes. Connected cars could ultimately be cheaper to build because occupant protection is one of the main drivers of vehicle mass. Burns says that if cars don’t crash, the steel content of cars can be safely reduced, enhancing the opportunity to run electric vehicles farther and faster.

If the U.S. government provides the money to bridge the auto industry into this new world, the use of up to $1 trillion in funds would be well worth the cost. So let’s stop beating ourselves up with what has gone wrong in the past and start building toward the next 100 years.”

General Motors (GM) was founded in 1908 in Flint, Michigan, and grew to be the largest corporation in the world. Its market capitalization reached $50 billion in 2000. In the past week, its market capitalization dropped below $1 billion to levels last seen during the 1920s. The story of General Motors is the story of America. In 1953, at the peak of its dominance, its President, Charles Wilson, declared before Congress that what was good for the country was good for GM and vice versa. Its rise to power and decline towards insolvency parallel the rise and fall of the Great American Republic. Overconfidence, hubris, lack of courage, foolish decisions made, and crucial decisions deferred have been the hallmarks of GM and U.S. GM’s stock price reached $1.77 last week, a 71 year low. It peaked at $100 during the Dot Com boom in 2000 and was still at $50 in 2007. The market has voted and it says GM is bankrupt.

American carmakers have seen their market share drop from 85% in 1985 to 43% today. GM’s market share peaked at almost 50% in the 1960’s. It reached a historic low of 19.5% in January. Its sales plummeted 49% from a year ago. GM has too much debt, too much bureaucracy, too many plants, too many car lines, too many employees, and too many future healthcare and pension obligations. Of course, the only way a company can be in such a disastrous position is through decades of mismanagement. The only logical solution is for GM to enter a pre-packaged bankruptcy with financing provided by the U.S. government if bank financing is unavailable. Shareholders and bondholders will be wiped out. They made a bad investment. Plants will be closed, UAW contracts restructured, management replaced, employees fired, debt written off and future obligations reduced. A much smaller viable company that can compete in the 21st Century would exit bankruptcy in a year or two. A profitable, low market share is preferable to a high market share with billions in losses.

The decline of GM is a testament to how poor strategic decisions over the course of decades will ultimately lead to collapse. The United States has followed the GM model of failure for the last three decades. The U.S. has too much debt, too much bureaucracy, too many government supported industries, too many agencies, too many employees, and $53 trillion of unfunded future liabilities. See any similarities to GM? Can the U.S. avoid the fate of GM, or is it too late? If we can learn the important lessons of the GM decline, it may not be too late to reverse our course. Or we can continue on the current path and follow the advice of Will Rogers: “If stupidity got us into this mess, then why can’t it get us out?”

Meteoric Rise
By the early 1920s, General Motors had surpassed Ford Motor Company (F) as the largest car company in the U.S. under the leadership of Alfred P. Sloan. He created the concept of annual styling changes that kept consumers coming back. He also established a pricing structure for each of GM’s brands from lowest to highest (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac). The idea was to keep a family coming back to GM over time as they became wealthier. He was a pioneer who drove GM to become the largest and most profitable industrial enterprise the world had ever known. His words reflect that spirit: “There has to be this pioneer, the individual who has the courage, the ambition to overcome the obstacles that always develop when one tries to do something worthwhile, especially when it is new and different.”

In the midst of the Great Depression, Mr. Sloan was able to keep General Motors profitable. That is an indication of a smart, realistic businessman who didn’t make poor decisions during the Roaring 20s. GM’s results during the heart of the Depression, when one-third of all dealers went broke, according to Automotive Daily News were:
* 1929 Net sales – $1,504,404,472 Net income – $248,282,268
* 1930 Net sales – $983,375,137 Net income – $151,098,992
* 1931 Net sales – $808,840,723 Net income – $96,877,107
* 1932 Net sales – $432,311,868 Net income – $164,979

By 1936, GM managed to increase car sales to 1.7 million and to 2 million by 1941, before converting operations to military requirements. Only an executive like Sloan comfortable in his own skin and tolerant of other opinions would speak the following words: “If we are all in agreement on the decision – then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”

The best business decisions are made after open debate that includes dissenting opinions and arguments. Only great leaders allow this type of decision making. Alfred Sloan led GM for over 30 years, retiring in 1956. GM’s profit in 1955 had reached $1.2 billion ($8 billion in today’s dollars). It was on top of the world.

On Top of the World
During World War II General Motors produced armaments, tanks, vehicles, and aircraft to help the Allies to victory. During the 1950s, GM became the largest corporation in America and became the 1st company to pay taxes over $1 billion in a single year. In 1955, GM employed 624,000 Americans. In the copy of the 1955 GM Annual report below, it shows that only 27 cents of every dollar of revenue was paid to employees. The GM business model was very profitable. Their market share peaked at 54% in 1954, the same year they sold their 50 millionth automobile. After the retirement of Sloan, a visionary leader failed to materialize. GM began to show signs of overconfidence as the 1960s arrived. They started to believe their own press clippings. They failed to heed the advice of another well known auto man Lee Iacocca: “The most successful businessman is the man who holds onto the old just as long as it is good, and grabs the new just as soon as it is better.”

Peter Drucker, the world renowned management guru, wrote a detailed analysis of General Motors in 1946 called Concept of the Corporation. His suggestions to management and the UAW were scoffed at by both parties. He suggested the automaker might want to reexamine a host of long-standing policies on customer relations, dealer relations, and employee relations. Among his specific recommendations was for GM’s hourly workers to assume more direct responsibility for what they did, adopting a “managerial aptitude” and operating within a “self-governing plant community.” The UAW’s powerful president, Walter Reuther, greeted that notion this way: “Managers manage and workers work, and to demand of workers that they take responsibility for what is management’s job imposes an intolerable burden on the working man.” Reuther did not fall into the “visionary” category.

Glory Days
As the 1960s began, GM began decades of reacting to competitors rather than showing the way. As the European car makers introduced smaller cars, GM introduced the Chevrolet Corvair. This car later was attacked by Ralph Nader, who wrote the book Unsafe at Any Speed, which led to congressional auto safety hearings. Speed took precedence over safety. GM continued to maintain its worldwide dominance through the 1960s into the 1980s. New car controversy plagued the company during these decades. Every decade, a major new product line was launched with defects of one type or another showing up early in their life cycle. In every case improvements were eventually made to fix the problems, but the resulting improved product ended up failing in the marketplace as its negative reputation overshadowed its eventual quality. Again, Lee Iacocca’s wisdom went unheeded at GM: “In the end, all business operations can be reduced to three words: people, product, and profits.”

GM forgot that superior products developed by superior people lead to profits. The 1970s were marked by more disastrous product launches. Who could forget the Vega? Quality was not job one for GM. The last major strike by the UAW also occurred in 1970. After that, management continually gave in to the union demands in all future contract negotiations. They promised tremendous pension benefits, lifetime healthcare benefits, huge pay increases, and onerous work rules that gave management no flexibility. GM evidently didn’t have any bean counters who could extrapolate past a five year horizon. If they had, they would have seen that they would eventually have an unsustainable cost structure with more retirees being paid than workers on the assembly line. The troubling facts were ignored because GM still had a 45% market share during the 1970s. GM’s U.S. employment reached 618,365 in 1979, making it the largest private employer in the country. Worldwide employment broached 853,000. It has been downhill ever since.

In 1983, in an epilogue to 1946’s Concept of the Corporation, Peter Drucker wrote: “GM may, within a decade, develop into a true transnational company that integrates markets of the developed world and their purchasing power with the labor resources of the Third World.” And “while it is much too early even to guess what GM’s labor relations will look like,” he added, “the assembly line, that symbol of industry during the first half of the century, will, by the year 1990 or the year 2000, probably have faded into history.” Mr. Drucker underestimated the lack of vision and foresight of GM management. They continued to follow the old ways until it was too late. Japanese carmakers arrived like a freight train during the 1980s and have never let up. GM has essentially been in a death spiral for the last 30 years. Throughout the 1980s, GM rolled out more duds like the Chevrolet Citation, Chevrolet Cavalier, and Pontiac Sunfire.

Decline of an Empire
Roger Smith ran GM from 1981 until 1990. During his reign, GM’s market share dropped from 46% to 35%. His biggest claim to fame is being the subject of Michael Moore’s first documentary Roger & Me, which was extremely critical of his laying off of thousands of employees in Flint, Michigan. He took over GM in 1981 while it was losing $750 million, its 1st loss in 60 years. Poor product quality, labor unrest and lawsuits over unsafe vehicle designs affected sales volumes in the early 1980s, which led to GM losing market share at an alarming rate to foreign automakers. In 1981, U.S. Union autoworkers responded to the Japanese threat by bashing Japanese automobiles with sledgehammers. I’m sure this made them feel better, but it was a futile and useless gesture. Smith attempted to institute Japanese manufacturing techniques, but the ingrained bureaucracy resisted change and foiled his efforts. A culture of mediocrity and poor quality led to continuous decline rather than continuous improvement. The acquisition of EDS from Ross Perot in 1984 was a failure. Perot attempted to change the culture of GM, but failed. Perot liked to say that getting GM moving again was like teaching an elephant to dance.

General Motors had a chance to take a commanding lead in the mid 1990s. It developed the 1st electric car, the EV1 in 1996. Instead of taking advantage of this opportunity to change the automotive world, GM scrapped this car and destroyed all of the models. It decided the future was in trucks, SUVs, and Hummers. It continued to roll over to the unions every time a contract came up for renegotiation. This ultimately led to an average hourly labor cost of $73.26 for GM by 2006, a 65% premium to what the Japanese pay their autoworkers.

GM sold its soul to the devil of debt and high margin, low mileage vehicles. SUVs generated a profit of $10,000 to $15,000 per vehicle, even with GM’s bloated cost structure. Rather than improve its assembly line efficiency, product design & quality, or solidify its balance sheet, it chose to use its GMAC subsidiary to make loans to subprime borrowers at 120% of the car’s value. After 9/11, GM showed its dedication to the flag by giving cars away with 0% financing. Amazingly, when you provide 0% financing to people with 550 credit scores you can sell millions of Escalades and Hummers. While Rome was burning GM management continued to fiddle. There hundreds of Presidents, Vice-Presidents, and Directors continued to fly around in their fleet of 7 corporate jets. As Rick Wagoner and his top cronies secluded themselves in executive suites on the 14th floor of their palatial headquarters, eating steak and lobster in their executive dining room, served by minions, GM was rotting from within.

Giving away cars for free was so successful, GM decided to parlay its expertise into giving homes away for free. It bought Ditech in 1999, just in time to catch the greatest housing bubble of all time. Ditech was a pioneer in offering 125 percent loans, in which the borrower could get more than the property was worth. It specialized in no-documentation mortgages and stated income loans. How could lending someone 125% of a home’s value with no proof of income or assets possibly go wrong? To quote Claude Rains from Casablanca, “I’m shocked, shocked to find that gambling is going on in here!” GMAC surprisingly lost $8 billion in the last two years. Luckily, the American taxpayer has stepped in to provide GMAC with $5 billion of TARP so it can continue to allow GM to sell more cars at a $2,000 loss per car. No need to worry, it’s hired some Wall Street wizards from Citicorp who have figured out that they can make it up on volume. Paul Kedrosky recently provided a fascinating look at how two decades of profits could be wiped out in seven months. With 260,000 remaining employees, the end is near for this fallen giant.

A corporate governance study at ragm.com sums up the reasons for GM’s decline: “The history of GM is an instructive story in how success can breed failure; how being the biggest and the best can lead to arrogance and an inability to adapt. GM was the premier car company in the world for so long that it failed to see the need for change. The company was so used to being leader that it couldn’t contemplate following others. It was this mindset, this overwhelming belief that it was GM’s divine right to be the most successful automobile company on earth that condemned the company to two decades of disaster. When GM did finally see the need to adapt, it did so with wild ineptitude, spending tens of billions in the 1980s for little reward.”

General Motors has lost $72.5 billion in the last three years. Why is the American taxpayer propping up this failed entity?

Long Road to Ruin
Bill Gross, one of the wisest and deepest thinkers in the financial world, wrote a report in May 2006 that compared the plight of GM with the plight of the United States. Mr. Gross’s words of almost three years ago ring even truer today: “I think it is important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions. Reportedly $1,500 of every GM car sold in dealer showrooms goes to pay for current and future health benefits of existing and retired workers, a sum totaling nearly $60 billion. The total future healthcare liability for all U.S. citizens can be measured in the tens of trillions.”

General Motors failed to find a solution to its problems. CFO Fritz Henderson admitted in 2006 that, “I have a social security system hooked to our balance sheet.” The reason he had a social security system hooked to his balance sheet was because previous management had made commitments that could never be kept in the long run in order to keep the party going in the short run. Sounds like GM management would do extremely well in government jobs.

Eroding Competitiveness
The United States peaked as a manufacturing economy in 1960, with manufacturing employees making up 26% of the workforce. They now make up less than 10% of the workforce. Total manufacturing jobs peaked at 19 million in the late 1970s and now have plummeted below 14 million and continue to fall. The U.S. decided to outsource manufacturing jobs because we were going to do the thinking for the world. Why get your hands dirty creating things when our brilliant MBA trained geniuses could turn loans to deadbeats and frauds into AAA rated Mortgage Backed securities? The U.S. decided to take the easy path of financial engineering rather than the hard path of creating products that other countries would buy.

The trade deficit caused by decades of choices by government and industry reached $677 billion in 2008. These deficits were always unsustainable. Borrowing from the Chinese and Japanese to buy stuff produced by China and Japan could never go on forever. Instead of realizing this imbalance and taking actions to gradually rebalance the world financial system, our financial leaders and Federal Reserve reduced interest rates and encouraged the imbalance to grow, until it collapsed in 2008. Now their solution is to lower rates to 0%, devalue the currency, and encourage further borrowing. Sounds like choices made by GM in 2001. The Sage of Omaha, Warren Buffett explained the dilemma: “In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4 percent more than we produce — that’s the trade deficit — we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.” The mortgage is now due.

Uncompetitive Labor Costs
By devaluing the currency and producing never ending inflation while manipulating the CPI statistics to understate true inflation, the government and Federal Reserve attempt to keep America competitive through gimmicks rather than hard work and sacrifice. When the country produced products that the world wanted, median family income rose at an annual rate of 3.7% above inflation. Since 1970, using government manipulated inflation statistics median family income has been stagnant. If a true inflation factor was applied, the median family has lower income today than they had 30 years ago. The only way people have “achieved” a better life is through the use of debt, which has been encouraged by the government, Federal Reserve and banks. This encouragement led to the collapse of the great American Ponzi scheme in 2008.

American families will see their real household incomes plunge in the coming years to 1970 levels. The backlash against immigrants, both legal and illegal is likely to intensify over the next few years. The decades of allowing our economy to be hollowed out and shipped to China is coming home to roost. Besides weapons and movies, what does America produce that anyone wants? Our financial geniuses have essentially brought down the worldwide financial system by selling foreign countries MBSs, CDOs, etc. That has been our contribution to the world in the last eight years. Now, we have delegated the responsibility of our corporations to the U.S. government bureaucracy. Lee Iacocca explained years ago how well the government runs things: “One of the things the government can’t do is run anything. The only things our government runs are the post office and the railroads, and both of them are bankrupt.”

Rather than address the structural problems of our healthcare and social security systems, our government politicians push off the issues until after the next election. They have been doing this for 30 years. This is why David Walker has described these cowardly politicians as displaying “laggardship” rather than leadership. Our elected leaders flounder from crisis to crisis using stopgap methods to plug holes in the ship of state while ignoring the huge iceberg on the horizon. There is one thing I am sure of. The deficits projected by the CBO over the next four years will be hundreds of billions higher. They haven’t taken into account emergency stimulus packages 2 & 3.

While the U.S. Titanic steams full speed ahead toward the iceberg of unfunded Social Security, Medicare, and Medicaid liabilities, our politicians spend our tax dollars on digging holes and then filling them up again. As these future unfunded liabilities continue to rise, the government’s solution is to print money, keep interest rates at 0%, devalue the dollar, and hope for the best. The U.S. depends on foreigners to buy more than 50% of our newly issued debt. When you owe $10.7 trillion to others, you usually don’t get to dictate the terms. Today, the U.S. is asking foreigners to lend us money for 30 years at 3.5% while telling them that we will pay them back in dollars that will be worth 30% less in the next five years. Even a Wall Street CEO could figure out this isn’t a good investment. The U.S. will default on this debt. It is just a matter of when.

Bill Gross laid out the choices for the U.S. in 2006: “How are we to pay for this future burden of healthcare and social security expenses? Aside from contractual legislative changes to both areas (which are surely just around the corner), the way a reserve currency nation gets out from under the burden of excessive liabilities is to inflate, devalue, and tax.”

The U.S. is hard at work on inflating and devaluing, while Mr. Obama is working on the details of the taxing. The Burning Platform for GM has already collapsed. The Burning Platform for the U.S. is a ten alarm fire. Collapse is imminent, unless a leader with guts and courage is willing to lead the U.S. back to fiscal sanity. If you believe in fiscal sanity, please join me at TheBurningPlatform.com.

When I was growing up in the suburbs of Detroit, my family only bought American cars. We were not particularly patriotic. We never had a flag pole in our yard. But we only had American cars in our garage. I wonder, as GM executives arrive again on Capitol Hill, how many families are left who still adhere to American car patriotism? Not many, I suspect. And this leads me to a strong, if not sobering prescription for GM.

To succeed again, GM must do more than build good cars. GM must find a path from ‘buy American’ to ‘buy green’ and then it must become that path. It must not only find a way to market itself as a premier car company for transportation invested in environmental stewardship, but also create the means for millions of Americans to identify anew with their products as the country embraces a more sustainable economic and cultural story.

GM of all companies has probably benefited the most from this kind of automotive nationalism. At one point, the main focus of their TV marketing was swapping the word ‘Mom’ for ‘Chevrolet’ in the jingle, “Baseball, Hot Dogs, Apple Pie, and…Chevrolet.”

Personally, I think American car patriotism is not such a bad idea, but I can see why fewer and fewer people go in for it these days. Try asking any potential car buyer under 40, for example, if they would buy an American car. Irrespective of their political persuasion, that under-40 potential buyer is likely to offer up something about going green–the environment and trust. Deep down they may have memories of buying American cars when they were kids, but times have changed. Buying American is what our parents did. Buying green is what we do now. Or is it?

What if, for example, President Obama were to use the bully pulpit to rekindle American car patriotism? “American car companies are building the cars that Americans need,” he could say at his next press event. “So if you need a car, buy one from GM, Ford or Chrysler.” Even if Obama did say that, though, I doubt the resulting media stir would translate into car sales.

The problem is the new frame that defines our thinking on car sales. The big story on buying cars has shifted in the past few years from ‘buy American’ to ‘buy green,’ but GM has not shifted with it. Ford is already well under way towards refocusing their brand and they are not taking bailout funds at this point. Plus, Ford has a prominent executive who bears the company name and is genuinely a leader of new green thinking. But GM? Not so much.

Take a look at GM’s website and you see a company that talks big change, but is oddly out of sync with the new vernacular. GM speaks a different language than a country of consumers seeing the world anew threw green tinted glasses. GM may throw around hopes of new fuel cells and adding a few more miles per gallon to current models, but they also talk about the enduring need for trucks. They sound like a company weighed down by nostalgia far more than they are buoyed by innovation. And this says nothing about the quality and value of the cars they produce, which is higher than at any other time in the company’s history.

GM is suffering from a brand-identity problem, and a severe one at that. When I close my eyes and think of the most “un-green” large-scale manufacturing company in America, for example, GM is right up there in my list of three or four. Is that fair? Probably not. God knows I would still give my left kidney for a 1978 Corvette. Still, the fact remains that when most people today think of GM, they do not think of sustainability.

While GM is busy trying to convince the country through PR that it is poised to become a major player in the new era of sustainability, more and more Americans look at GM as the company that symbolizes the old era of gas guzzlers and SUVs.

All this means that the path to survival for GM–not to mention prosperity–is more than a matter of finding a way to put high-capacity batteries into production vehicles in the next 2 years. Given enough cash, they could probably do that. For GM to thrive again, the company must drop its past reliance on American car patriotism and embrace the new ‘green’ ethic that is pushing Americans to reinvent themselves.

What might this look like if GM actually underwent such a radical transformation? Imagine, for example, if tomorrow GM announced that it was changing the mission of its company to something like this: Meet the world’s transportation needs with the goal of protecting global water resources for future generations everywhere?

Now, if I were to sit down with a GM executives tomorrow, and advise them to change their mission statement to emphasize transportation and water stewardship (just one possibility of many) instead of just selling cars, they would tell me that I was being unrealistic and that I should find a way to ‘balance’ the economy with the need to protect the environment. And that is what makes GM a company of the past–a company hiding from change behind a cloak of American car patriotism that is rapidly diminishing.

Ford has already made the shift from ‘cars’ to ‘transportation’ and from ‘earnings’ to ‘stewardship’ in their corporate vision. GM has not even begun. And yet, for a company of GM’s size to benefit from the kind of economic investment and recovery the Obama administration has set in motion, it must do more than just take buckets of government money and apply it to the holes in its rickety financial roof. GM must reinvent and revolutionize the very meaning of “GM” in the American mind. To all those GM executives who would respond to this challenge by saying, “We have already done it!” My answer is: Sorry, but…no you have not. The truth is in the hearts and minds of the American consumer when it comes to GM, not in the damage control of the GM PR machine.

I am optimistic, if not a bit nostalgic. If GM would start tomorrow to build that path from ‘buy American’ to ‘buy green’–the next 5 years could be the most exciting time the American consumer has ever known. The innovations that could hit the market as a result of a completely reinvented GM would be virtually limitless. The Detroit Auto Show could become the biggest world stage for green technology ever known. Michigan could become the center of a new green manufacturing movement. The result would be a radical shift in how we experience and how we think about American cars and how we think about being American. The choice is up to GM–the real choice. I hope they make it.

{As a founder of PayPal, Elon Musk made $250 million in an Internet minute. But then he got bored. He wanted a bigger challenge. Much bigger. So he asked himself: What are the three largest, most important, most difficult challenges of our time? The answer: solar power, space travel, and electric cars. Then he tried to tackle all three at once}

But Elon doesn’t want to go inside and doesn’t understand why the others do. It’s beautiful out here in the dark. Elon and his siblings and cousins start to argue. Come on, Elon. No! Come, Elon! I won’t! Please, Elon. Tosca, the 3-year-old, starts to yell, then cry. Then she blurts out what the other children are thinking. “Elon, I’m scared!”

Tosca’s mummy has come outside to see what the tears are about. Huddled there on the porch are Tosca and Kimbal—the middle sibling, fifteen months Elon’s junior—and the cousins. And there at the tree line is Elon. The light has mostly waned, but Elon, he’s so white, skin as pale as a fish’s belly, and Maye Musk can see his face so clearly. Beaming. Euphoric. Because he knows. Elon hasn’t been bickering with his sister and brother; he has been evangelizing. And now he raises both arms to make sure they can see, as well as hear, the good news. “Do not be scared of the darkness!” Elon Musk calls out to them from the wilderness. “There is nothing to fear—it is merely the absence of light!”

Though Elon has been issuing such pronouncements for several years, it seems to Maye Musk that the distinct way her son has of inspecting the world around him—so precise, so sober—was fully formed even before he could speak. A carefulness was evident, a stillness. Now, at 6, he is creative and imaginative, but not in a fanciful way. Other than a fondness for comic books and Tolkien, he doesn’t engage in make-believe, doesn’t make things up. There are no imaginary friends—a surprise, since he doesn’t have many real ones—or monsters in the closet. Elon simply isn’t interested in things that are not there. Only in things that are, or plausibly could be. Facts. Elon needs facts the way he needs air.

And so he reads. Four, five hours a day, even as a first grader. He forgets nothing he reads. Tosca will say, “I wonder how high up in the sky the moon is!” and Kimbal will respond, “A billion kilometers!” And Elon, smiling, sharing, will say, “Actually, it is 384,400 kilometers away.” His siblings will stop and look at him then, and Elon, interpreting the silence as an invitation, will add, “On average.”

Just the facts. They’re all Elon needs. What he doesn’t seem to need is a mentor, or even encouragement. Sometimes he fires questions at his father, an electrical and mechanical engineer. Problem is, many of his questions involve computers, which Errol Musk dismisses as “toys that will amount to nothing.” His son calls this opinion “very silly” and, at the age of 10, buys his first computer and begins teaching himself how to program it. Two years later, he sells his first piece of software—a video game called Blastar—for $500.

Intelligence like Elon’s—self-originating, self-sustaining, seemingly parentless—provokes a reflexive question from everyone who encounters it. Where does such a child come from? It’s also a rhetorical question. The better thing to ask is: Where does such a child go?

This is the more relevant question not only because it is answerable but because it can and must be asked and answered now. Now—when we are more uncertain about one another, and about ourselves, and about our direction, than we have been in decades—it is important for us to hear a story like Elon Musk’s. As a reminder. And as a bracing slap to the face.

Because when children like Elon Musk attain the kind of self-awareness that leads to questions about environment—Where in the world can I go for the license and the room to do what I must do? Where in the world are my peers?—they always, and still, come to the same conclusion.

Elon Musk knew when he was a child. A remarkable conviction for a child to have, and all the more so because there was no specific dream attached to it. There was no “to build rocket ships” or “to make millions” or “to design computer software.” Instead, Elon (pronounced ee-lon) had this thought, consciously, literally, and at the age of 10: America is where people like me need to go. That is where people like me have always gone. A place that was the photographic negative of apartheid South Africa, a place less encumbered than any in the world, ever, by fear.

“It is as true now as it has always been,” says Elon Musk, the man who is endeavoring—as preposterously as he is credibly—to give the human race its biggest upgrade since the advent of consciousness. “Funny how people seem to have forgotten that. But almost all innovation in the world takes place in the United States.”

*****

By the time he’s 10, he’s reading eight to ten hours a day. Elon reads and Elon retains, and his retention armors him. When the negative injunctions, You can’t and You won’t, come at Elon the way they come at all children, tens of thousands of times and in every conceivable form, sometimes overt and hard, sometimes insidious and soft, he simply doesn’t hear them. Another couple of decades will pass before his biography fills in the specifics, but Elon Musk—the metamorphic intellect, the stuntman brazenness, the aura of immanence—is already there. The 24-year-old physics Ph.D. candidate at Stanford who drops the program after forty-eight hours to become a software programmer who sells his first venture, a media-software company called Zip2, for $307 million? There. The propulsive personality that, within weeks of that sale, starts X.com, an online-banking company that morphs into PayPal before being sold to eBay in 2002 for $1.5 billion? There. The 30-year-old autodidact who then dispenses with digital ephemera in order to become a man, a rocket man, a rocket scientist, and creates Space Exploration Technologies, a company whose short-term purpose is to commercialize an endeavor—orbital rocketry—that has previously been the province of a handful of nations and huge aerospace concerns (Northrop Grumman, Lockheed Martin, Boeing, etc.) and whose long-term aim is, yup, a mission to Mars? There. The 32-year-old entrepreneur who decides it’s time to gin up some ambition already and wean America off the teat of foreign oil while combating global warming, and in 2004 makes himself the controlling shareholder and, eventually, CEO of Tesla Motors, manufacturer of the world’s first all-electric sports car? There. The 34-year-old penitent who realizes he’s just not doing his part, greenhouse-gas-wise, and becomes the chairman and controlling shareholder of SolarCity, turning the company into one of the nation’s biggest installers of solar panels? There.

The above reads as a chronology, which it is, but much of it is also a simultaneity: Elon Musk is currently helming three companies, all of them start-ups, each of them created to address an intractable global problem, two of them on the cutting edge of entirely different engineering technologies, and none of them in even remotely related industries. He is doing so as a businessman (he devised the business plan for SolarCity, which is run by his two cousins, and is the chief executive of the other two) and as a financier (having put more than $100 million of his own money into SpaceX and $55 million into Tesla), and that’s something.

But really, it’s nothing, because he’s not just the vision guy or the money guy or the marketing guy, although he’s all of those, too. He’s also designing the stuff. At each of his companies, he knows what the engineers—chemical, mechanical, electrical, structural—know and what the software programmers know, and he does what they do. When the brushed-aluminum pedal of the Tesla Roadster is floored, unleashing 650 amps and 14,000 rpm from the car’s 6,831 lithium-ion cells and launching it from zero to sixty miles per hour in 3.9 seconds, the engine roars like…a cell phone on vibrate mode—a phenomenon made possible not only by Elon Musk’s money but by his mind. Likewise, the “CTO” in his official SpaceX title is descriptive, not ceremonial: Elon Musk taught himself how to design and build rockets. “I’d never seen anything like it,” says Chris Thompson, explaining what persuaded him to leave a senior position at Boeing to oversee “structures” at SpaceX. “He was the quickest learner I’ve ever come across. You had this guy who knew everything from a business point of view, but who was also clearly capable of knowing everything from a technical point of view—and the place he was creating was a blank sheet of paper.” Musk says (as do the rocket scientists he works with) that after founding SpaceX, it took him “about two years to get up to speed.” How is such a thing possible?

Books. They did for Elon what they’d always done. They gave him what he needed—facts. And, less obvious but just as crucial, they took away what he didn’t: fear, or even any kind of hesitation.

Did you see what Elon did this fall? It was big. It almost, but not quite, made up for what he did in August, when one of his Falcon 1 rockets failed to make orbit and ended up dumping James Doohan’s ashes—Scotty’s ashes—in the Pacific Ocean. The achievement might have slipped under your radar, though, because it came at the very end of September, just before the bottom truly fell out. Most of us had already assumed the fetal position by then, thrust our eyes into the softs of our elbows, anything to avoid looking at our latest 401(k) statements. So know this: On September 28, Elon Musk did something that had never been done before, and which experts had repeatedly said could never be done: launched a privately funded rocket built from scratch into Earth orbit. Previously, only nine nations (and the European Space Agency) had independently done such a thing—each after decades of trial and error, dozens of failed launches, and billions (of dollars, rubles, francs…) invested. Musk’s Falcon 1 rocket, built for $100 million by a company with fewer than 150 employees, succeeded on only its fourth attempt.

*****

Walk into the giant hangar housing the offices of SpaceX and you will immediately find your eye drawn to a large glass-walled space named after Wernher von Braun, the Teutonic creator-god of rocketry and, like Elon Musk, a naturalized American citizen. Spend an hour or two at the company and you’ll realize that von Braun refers less to a room than a state of mind. “We’ll take it to the von Braun”—that’s the argot, the invocation, in the face of any conflict that requires immediate resolution. Engineers at SpaceX talk about takin’ it to the von Braun the way toughs in dive bars talk about takin’ it outside.

It’s early November, late in the afternoon on election eve, as the dozen men who make up SpaceX’s senior design team file into the von Braun Room. (Yes, they’re all men, ranging from their early twenties to early fifties. Two wear wedding rings; all but Elon sport metal watches chunky enough to deflect gunfire.) There is every reason to believe that this will be a truly terrible meeting for Elon Musk. Actually, meetings are terrible almost by definition in Musk’s view. Meetings, he’s fond of saying, are what happens when people aren’t working.

But this Monday afternoon is special, thanks to Tesla. October has just proven to be the single worst month for the auto industry in twenty-five years. Despite being a new kind of company making a new kind of car, Tesla isn’t immune from what is ailing Detroit. People aren’t buying cars, period, much less $109,000 electric sports cars with a 244-mile range—a fact not lost on the venture capitalists Tesla relies on for financing. In recent weeks, Musk has had to close Tesla’s engineering office in Michigan, lay off 20 percent of the company’s staff (mostly from the Michigan office but also from the Silicon Valley headquarters), and announce a significant production delay in Tesla’s Model S—the $57,000 sedan that Musk (and those venture capitalists) have been hoping will broaden the company’s client base.

Yet more: That announcement about the S has nearly coincided with another, on the blog of Elon’s wife, the fantasy novelist Justine Musk, that he has left her and their five boys (4-year-old twins and 2-year-old triplets) for a 23-year-old English actress named Talulah Riley. “By all accounts she is bright and sweet and of course beautiful, and about as personally responsible for the death of my marriage as she is for the dynamic that played out inside it. In other words, not very,” Justine wrote. “Also, she is not blonde, and I do find this refreshing.” (After initial publication of this story, Elon contacted GQ to clarify that he and Riley met only after he had filed divorce papers, and that he has his boys several days a week at his home; in an e-mail, Justine confirms the custodial arrangement, and that Elon “has always insisted that he met Talulah on the July 4 weekend following his June 16 filing for divorce.”) And about a week after that, a Tesla employee leaked information to a popular Silicon Valley blog about how low morale at Tesla had sunk, and revealing the proprietary fact that the company—which has taken more than a thousand deposits from buyers who haven’t yet received their Roadsters—was down to its last $9 million in liquid reserves. The same day the blog item appeared, Musk issued a statement confirming the $9 million figure while announcing his intention to bolster Tesla’s cash with at least $20 million in additional financing. Then, in search of the leaker, he sent a computer-forensics team to seize and search the computers of various employees. The only redeeming pieces of news about Tesla? Leonardo DiCaprio, Matt Damon, and George Clooney are all having their Roadsters delivered this week.

Today, Elon and his SpaceX engineers are takin’ it to the von Braun to discuss a fine point of reentry physics, per an exchange in one of the day’s earlier meetings.

engineer #1: Would you VPPA?
engineer #2: [lustily] Naaaaaah, I’d probably go to soft plasma.
elon: You always get misplaced diameters with that.
engineer #2: What if the heat shield attached to the Dragon’s base…
[A prolonged exchange of glances; a clear consensus that there are sometimes feelings for which there can be no words.]
elon: We’ll take it to the von Braun.
[Satisfied nods from all. Exeunt, pursued by a bear.]

Now Musk sits, his engineers loosely grouped around him, waiting for one of them to begin a PowerPoint presentation. He just misses being extremely handsome, and somehow, by just missing the extreme of handsomeness, he also just misses being merely handsome. Yet Elon Musk draws eyes the way an extremely handsome man does, for two reasons. The first is that he is unusual looking, in a boyish and pleasant way. The second is that physically, Elon Musk is a very, very still human being, and there is something arresting about that. Or as one Silicon Valley blog recently put it, “The liquored-up consensus at San Francisco watering hole Joey & Eddie’s last night: Tesla Motors CEO Elon Musk is actually kind of hot.”

“The economy is shit,” he says, apropos of nothing and everything. Though Elon Musk almost never raises his voice and doesn’t now, his tone is unmistakably…chipper. “Do you realize what that’s going to do to the value of secondhand machines? They’ll be in the toilet! We can get an EB welder on-site!”

It’s the damnedest thing. The world is shit. Elon’s world is shit. Yet when Elon asks, “Should we buy a welder?” he seems to be doing so in the same way a 10-year-old asks, “Should we ride the roller coaster now?” Here in the von Braun, everything that comes out of his mouth, whether in the form of a question or comment, is about building, hiring, investing. If and when the present woes of the world are acknowledged—the economy is shit!—the point is to exult in how easy that’s going to make things.

But then the fun time is over and the meeting begins in earnest. The issue at hand involves the physics of reentry on the Falcon 9—the larger and more ambitious successor to the Falcon 1 that SpaceX put into orbit in September. SpaceX is all about making orbital rockets that are both cheap and reusable—in other words, rockets that can survive the hellfires of atmospheric reentry. The adherence to one-time-use technology is the reason space exploration has always been the province of governments and their contractors. (Even the space shuttle is only partly reusable—and still costs $450 million per launch.) The commercial viability of SpaceX is therefore less about getting rockets into Earth orbit than reliably getting them back. Without reusability, there can be no economy of scale, and if there can be no economy of scale, there can be no SpaceX.

Though SpaceX already has several Falcon 1 contracts lined up with government and private satellite makers, it is the Falcon 9—scheduled to be test-launched from Cape Canaveral this summer—that could transform the aerospace industry. With its single engine, the seventy-foot Falcon 1 can send payloads of 1,400 pounds or less into low Earth orbit (up to about 1,200 miles above the planet’s surface). The 180-foot F9, with its nine engines and its Dragon capsule, is designed to catapult eleven tons of cargo—or up to seven people—22,000 miles into the sky. What that will cost, at least initially: about $40 million per launch—somewhere between a third and a half of what NASA is accustomed to paying. An important breakthrough came in late December, when NASA awarded SpaceX a $1.6 billion contract which calls for the F9 to take cargo (and only cargo) to and from the International Space Station between 2010 and 2016.

The PowerPoint presenter mentions reentry temperatures and the need for “restoring the pitch moment.” All par for the course. But then he says it. “So we want to make sure there’s room enough for the avionics.…”

“There is shitloads of fucking room there,” Elon says quietly. Then, for clarity, he adds, “There is shitloads of fucking room there.” He’s not angry. This is just what Elon does; as nature hates a vacuum, Elon hates an inaccuracy. Without a trace of defensiveness, the engineer whom Elon has corrected explains the calculations underlying his previous statement. There’s some back-and-forth on that. On paper, the language can look a bit violent (“If people do anything that contributes to this [rocket] stage not being recoverable,” Elon says at one point, “they will find their work undone”). Spoken, it’s a purely informational exchange.

Will the molten slag cause any problems?
Nah, it’ll all be blowin’ off so hard…
If we think of this as an upside-down Dragon…
If we need three inches of cork, how the fuck will the inflatable survive?

And so it goes. It’s quite something to see a group of human beings offering themselves up in the service of facts the way these men are. Here in the von Braun, it is possible to comprehend the facts—all those mind-blowing technological facts—as molds into which these men have poured their lives, and not the other way around. Then it is over. There is no announcement of this fact. Elon doesn’t say “Good work, people” or “Okay, that’s it for now” or even “We’re done.” He just rises to his feet, saying “Yup” as he does, wheels around a walks off. Yup. From anyone else, it would read as a scornful dismissal.

He returns to the cubicle that serves as his office, I follow at a distance. He’s already at his desk, eyes fixed to the monitor of his desktop computer, when I arrive. I stand there for a bit, waiting for, I don’t know, some kind of permission. Then I sit. Elon Musk is working at his desk and I am seated five feet from him, facing him, watching. Minutes pass. I cannot determine whether he is unaware of my presence or just indifferent to it—only that whichever the case, it is entirely so.

Finally, just for kicks, I ask, “Was that fun?” Meaning the von Braun. Elon doesn’t hear the question. Just keeps looking at his screen, his fingers chattering away at the keyboard. Ten seconds pass. His mother has warned me about this. “We’ll all be out to dinner with him, and someone will say, ‘Let’s see a movie after dinner. Elon what movie do you want to see? Elon? We’re talking about a movie.’ But Elon’s not eating. He’s just sitting there. Thinking. ‘Okay, Elon’s not with us for a while, we’ve got to let him be wherever he is. Let’s, the rest of us, talk about the movie.'”

Eventually the fingers slow, then stop. Elon turns in his chair. His mouth does not move, yet somehow there is a smile. “Yeah,” he says. “I liked that. Actually, I liked that a lot.”

*****

Something remains to be said about the nature of Elon Musk’s ambition, something that makes the man either a sublime or comic figure. Or perhaps both. Because according to Musk, the point of SpaceX is not to make money. The point is that mission to Mars. And that mission, as well as the Martian colonization to which it leads, still isn’t the end-all Elon has in mind. There is a larger imperative.

According to Elon Musk, there are such things as “epochal moments.” As he defines them, epochal moments are not moments “in” human history. They’re larger. Rarer. Musk says the first epochal moment in the grand human ascent was “the advent of the single-celled organism. The next was the emergence of multicelled life. Then the differentiation into plants and animals. Then the move onto land. Then mammals. Then consciousness.” To Musk, epochal moments are make-or-break moments; either there is a great leap forward or there is extinction. One does not fuck with epochal moments. And now, Elon says, for the first time since we humans began peering at our own reflections and wondering Who?, another epochal moment is upon us: We’ve got to get off this rock—soon—or face oblivion.

“I founded SpaceX and put much of my fortune in it because I really believe it is a matter of when and not if, and that when is probably a lot sooner than most of us are comfortable thinking about,” Musk says of the end of life—all life, not just human—on Earth. There is a constant motion in his eyes as he says this. Actually, the motion is present even when he’s not prophesying the end-time. While his gaze remains fixed, the irises and pupils of his eyes—small, gray, wide-set—never stop moving. Very rapidly, almost imperceptibly, horizontally. Vibrate and even shiver overplay it, make it seem like a leer or tic when it is neither, and unappealing, which it isn’t. When Elon Musk speaks, the colored parts of his eyes shimmer with attentiveness. He seems less like a person who is speaking than one who is listening. “I’m not saying we’ll do it, to be sure. The odds are we won’t succeed. But if something is important enough, then you should do it anyway.

“Things have happened quickly,” he continues. “It took us millions of years to evolve into what we are, but in the last sixty years, with atomic weaponry, we’ve created the potential to extinguish ourselves. And if it’s not us, it will inevitably be something else. If not a meteorite in the relative short term, then the expansion of the sun’s corona. It will happen.” Yeah, man, the corona. Guy needs to lay off the comic books or go into movies, right? (Oh, wait—he already did that when he and two of his PayPal co-founders were producers on Thank You for Smoking.) But he’s not done. “It’s important enough to be on the scale of life itself, and therefore goes beyond the parochial concerns of humanity,” Musk says of our interplanetary destiny. “We’re all focused on our little things that are of concern to humanity itself. People think of curing AIDS or cancer as being very important, and they are—within the context of humanity. But curing all forms of cancer would improve the average life span by only two to three years. That’s it.” In other words, while eradicating disease is a worthy pursuit, and would extend the lives of individual human beings, my life’s work is extending the life span of life itself.

*****

How does a person say the kinds of things Elon Musk is fond of saying and not conjure a man stroking an albino show cat while reclining in the control room of his volcanic lair? Yet he doesn’t. This neutral, disarming tone of his has always been part of his gift, his ability to make grandiose pronouncements without coming across as arrogant or show-offy (as an adult) or obnoxious or precious (when he was a child). Part of this may be physical. In addition to being soft-voiced, Musk has an unusually small mouth that barely moves, if it moves at all, when he speaks. There’s a vaguely ventriloquistic effect. To listen to Elon Musk speak is to encounter words that somehow feel displaced from motive; he never seems to be attempting to prove anything about himself. There is a drawing power in that.

People follow Elon Musk. Many things about the man amaze, but none so much as the way he gets people to follow him. The pattern is constant: Elon declares his intentions and asks people to join him. Without exception, those intentions are ludicrous; without exception, the people he’s wooing are bright, older and more experienced than he is, and safely ensconced in lives they find fulfilling. Yet these people forsake the secure and the known to follow Elon Musk. It has been this way since he was a teenager.

Only a few months after Musk left South Africa at the age of 17, his sister, Tosca, announced to their mother that she intended to join him in Canada. (Elon was unable to immigrate straight to the United States—only to Canada, where his mother had been born and still had citizenship.)

“Elon is 18, you’re 15,” said Maye Musk, pointing out the obvious.
“Elon will look after me,” Tosca told her mother.

Tosca, it turned out, had absorbed more than a little of what her older brother had told her years before about the absence of light; Maye Musk returned from a trip to find that her 15-year-old daughter had not only managed to put their house on the market, but to sell it. “I think we must leave now,” Tosca explained. Elon was expecting them.

Nearly a decade earlier, Maye Musk had taken her three children and, as she now puts it, “run away” from her husband. (Elon says he and his father have been in “limited touch” ever since. “Quite an astute engineer, although he’s gone a little crazy later in life. I don’t think he has all his cookies in the jar.”) In the years following her divorce, Maye had built dual careers as a model and a dietitian. If she chose to emigrate, the South African government would freeze all her assets—even the money from the house sale. The choice filled her with panic. Don’t worry, Tosca assured her mother, “Elon knows everything.” How could Maye argue with that? Elon really did know everything, which meant there was nothing to fear. Which was why Maye Musk packed a bag and, with her two younger children, followed her eldest child across an ocean.

It was the same twelve years later when Musk started SpaceX and began recruiting. Some of those who came gave up senior, secure, lucrative positions at places like TRW and Boeing to come work at SpaceX with Elon Musk—an Internet entrepreneur with no background in rocket science. “It was a can-do attitude combined with the fact that he knew what he was talking about and was happy to be corrected if he didn’t,” says Tom Mueller, the man who now oversees all “propulsion” at SpaceX. “You couldn’t say no to it.” Others left places like Google and Microsoft to come work at SpaceX, and later at Tesla, because Musk liked the way their minds worked and convinced them that they, like he, didn’t need physics Ph.D.’s to build rockets and cars.

Perhaps the most remarkable thing about Elon Musk’s drawing power is that, as strange as it may seem, he is not a particularly charming or charismatic person. Charm and charisma require, first, the desire to be charming and charismatic and, second, the ability to execute; both of these require energy. And Elon, a man deeply attuned to the physics of his energy—its caloric and intellectual and financial and historical value—simply isn’t interested in using it to light up a room. And yet there is some…thing whereby Elon Musk enters a room and both the space and the other people in it suddenly seem distilled. What is that—and how does it obviate the questions about charm and charisma and even likability?

Here’s how: Elon Musk’s leadership, his ability to inspire and motivate the people who work for him, derives completely, and only, from his knowledge. The knowledge—the millions upon millions of facts that he has not forgotten—is itself a form of charisma, that infectious “thing you just can’t put your finger on” that we normally expect to see in the form of “star power.” Ironic, that the man with the intelligence and the will to take the human species to Mars and beyond would lack star power. And strangely assuring that he doesn’t need it. What he needs is to persuade the smartest engineers in the world to come work for him. Star power can’t do that. Facts can.

In the end—although it is patently ridiculous to speak of any kind of “end,” seeing as how Elon Musk is still three years shy of 40—all those facts add up to a kind of dazzling mosaic. Of…? Well, that depends on who you are. If you are Elon or one of the people working with him to build his cars and his rockets, it is an image that convinces—an image without metaphysical content: He doesn’t have faith that he can do it; he knows. Because Elon knows everything.

But if you are just…a citizen, and especially if you are an American citizen weary of soul after eight years of a national leadership not only incurious about but hostile toward science, even if this man fails to midwife the next epochal moment in the great human ascension, or even to deliver an affordable all-electric car that helps kill this country’s oil addiction, the mosaic image of Elon Musk’s life is one that galvanizes: This guy had to come here to attempt that.